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1. The cost of debt, preferred stock and common equity are 6%, 9.4% and 12%; respectively. The market value weights of debt, preferred stock and common equity are .30, .10 and .60. The company is in a 40% marginal tax bracket. What is its weighted average cost of capital?
a. 12.31%
b. 10.98%
c. 8.44%
d. 13.41%
e. 9.22%
2. In theory, the net present value
a. is often in conflict with the profitability index
b. is never acceptable for mutually exclusive projects
c. is rejected as a method of evaluation when it conflicts with the payback
d. should not be used when the required return is too high
e. is the amount the project adds to the market value of the firm
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